Digital Music On The Rise -- Big Labels Still Screwed

Remember the old save-the-music business plan? The labels would transition to digital music, which would be more profitable (no discs, no shipping, etc) and more fan-friendly (only buy the songs you want, etc).

Well, that digital transition is indeed happening: According to the RIAA (PDF) digital accounted for 23% of music label's revenue last year, up from 9% in 2005. But it's not helping. Here's Goldman analyst Ingrid Chung's monotone description of the business, in a Warner Music Group (WMG) note out today:

"We believe that the new revenue streams (including digital) are not likely to offset physical declines in the near to medium term. We believe that a fundamental shift in the consumer proposition is required to drive revenue growth."

SAI translation: Record labels are screwed, because people aren't buying nearly enough 99 cent iTunes downloads (AAPL) to make up for the $15 discs they used to buy. "Fundamental shift in the consumer proposition" = some way to make up that difference. Good luck.